When the FTC issues an HSR Second Request, it may subsequently determine to modify that request if it “determines that a less burdensome request would be consistent with the needs of the investigation.” Last week, the FTC amended Section 2.20(b)(3) of its Rules of Practice to clarify that it may take into account all “relevant factors” in determining whether to modify the request.
The amended rule specifies that relevant factors may include “timing agreement negotiations, the competitive issues involved, the manner in which information and documents are maintained by the recipient, the type of information available to the recipient, the relative burdens to the recipient(s) of producing the requested information, and whether a less burdensome request would be consistent with the needs of the investigation.” This Gibson Dunn memo discussing the amendments offers some key takeaways for dealmakers. These include:
Greater Transparency in Second Request Negotiations. The amended rule codifies factors FTC Staff may consider when negotiating Second Request modifications, providing parties with a clearer framework for engaging with Staff on scope and burden. Notably, the amended rule now expressly states the linkage between modifications and timing agreements—a concept that has long been applied by FTC Staff but had not been codified until now. Parties and their counsel can now point to the enumerated factors—including the relative burden of production and timing agreement negotiations—when advocating for modifications that narrow the scope of a Second Request.
Proactive Engagement with FTC Staff Remains Critical. Parties receiving Second Requests should engage FTC Staff early and proactively regarding the scope of production. The codified factors, particularly those relating to how information and documents are maintained and the relative burdens of production, may provide avenues for productive dialogue about narrowing or tailoring requests.
The memo points out that the amendment applies only to FTC-issued Second Requests, but that it represents a continuation of updates to Second Request procedures by both the FTC & the DOJ. It also notes that substantive standard for the information that the FTC may seek through the Second Request process remains unchanged.
– John Jenkins
Last month, Meredith blogged about Verisk Analytics v. ExactLogix, (Del. Ch.; 8/26), in which the Delaware Chancery Court held that because a prospective buyer’s actions were the “primary cause” of the FTC issuing a second request that prevented the HSR waiting period from expiring prior to the “drop dead” date, it could not terminate the merger agreement. The Court further ordered the buyer to continue using commercially reasonable efforts to obtain antitrust clearance and to close the transaction if it was obtained.
This Cooley blog says that the decision and the Chancery Court’s approach to the specific performance remedy are sufficient to take specific performance clauses out of the realm of boilerplate and into the boardroom. This excerpt focuses on what the Court did not find regarding the buyer’s conduct in reaching its decision and crafting its remedy, and the implications of that for buyers and their boards:
The striking part is what the court did not find. This was not a classic buyer’s-remorse case where the purported termination was a way to get out of a deal that the buyer regretted post-signing. The court found virtually no evidence that Verisk intended to scuttle the acquisition. Verisk met with the FTC nearly 30 times, hired experienced advisers and lobbyists, and spent almost $8 million responding to the agency.
Verisk lost anyway. Under the language the parties negotiated in the merger agreement, an intentional business decision terminating negotiation of an enhanced integration with a competitor of AccuLynx, was enough to eliminate Verisk’s right to validly terminate the merger agreement if that decision was the “primary cause” of the failed closing condition. This was so, even if that decision was not made in bad faith, not an action constituting a breach of the agreement and not undertaken as a deliberate effort to kill the deal.
For boards and CEOs, that makes Verisk more important than another bad-buyer morality tale. It shows that ordinary post-signing conduct can have extraordinary contractual consequences. A key question that board members should ask their counsel before signing is now: “If the transaction encounters obstacles to closing, what are each party’s continuing performance obligations?” Well-seasoned outside counsel should be able to give precise rationale for each provision’s language and how they interrelate and ensure that the rules of the road between signing and closing are communicated all the way down the chain.
– John Jenkins